State gas tax holiday has no clear winners

Alaska's gas prices still highest in U.S. despite suspension of the gasoline tax

Posted: Sunday, November 30, 2008

By PAT FORGEY

Alaskans are no longer paying a state gas tax, but whether that means they're paying less for their gas is unclear.

Last summer, when oil prices were at record levels and gasoline prices were hammering drivers, Gov. Sarah Palin and the Alaska Legislature decided to suspend the state's motor fuels tax, hoping the savings would be passed on to consumers.

Now, oil prices have fallen dramatically. By one measure they've dropped a stunning $100 a barrel from the summer's high to last week's low in oil prices.

At the pump, not so much.

While the U.S. Energy Information Administration reported the price of gas nationally at $1.89 a gallon, the price was more like $3 a gallon in Juneau.

Many Alaska legislators, including those who voted for the tax suspension, had doubts about whether the savings would be and are being passed on to consumers.

"I'm skeptical," said Rep. Les Gara, D-Anchorage. In the state's larger cities, competition may have resulted in some savings to consumers, he said. But much of the savings may be pocketed before they reach consumers.

Gara said he thinks the refineries are profiting.

"The refineries have us over a barrel," he said. "The refineries are overcharging the local dealers."

The difference between the price of a barrel of oil and the price paid by drivers filling their tanks is what goes to the refiners, shippers and retailers and the state and federal governments.

The Alaska Attorney General's Office is investigating gas pricing in Alaska, including whether the tax suspension has been passed on to consumers.

Assistant Attorney General Ed Sniffen said it may be difficult to answer the question of whether the tax suspension is passed on to consumers.

"I don't know that looking at the difference between retail gasoline prices and crude oil prices is a good indicator," he said.

He said the office was watching closely in Wasilla, Fairbanks and Anchorage when the suspension took effect.

"In all three of those areas the price of gasoline dropped by exactly 8 cents," he said.

That's what the state had hoped would happen.

"I'm pretty sure that, at least initially, and at least on its face, it was passed on," Sniffen said.

What state investigators don't know is whether that's continued.

"Here's the rub," Sniffen said. "As time goes on, it's very difficult to tell if retail sellers are adjusting their price to creep that price back in."

Sniffen is working on a report on gas pricing in Alaska, and has issued subpoenas to companies in the industry to try to determine if illegal conduct, such as price fixing or other collusive conduct, is the reason Alaska's gas prices are the highest in the nation.

Those high gas prices come despite Alaska's suspending its gas tax, already the lowest in the nation.

Alaska's highway fuel tax was 8 cents per gallon, its marine fuel tax was 5 cents per gallon, its aviation fuel tax was 4.7 cents per gallon, and its jet fuel tax was 2.3 cents per gallon. The suspension was estimated to cost the state treasury $40 million, the Department of Revenue estimated.

The federal government's gas tax, which was unchanged, is 18.4 cents.

Randy Ruaro, deputy chief of staff for Palin, told the Legislature last summer he was confident the suspension of the gas tax would be passed on to consumers, at least in part, because of competition.

Ruaro said studies by the Massachusetts Institute of Technology showed that 60 percent to 80 percent of the tax savings were passed on to consumers when two states, Illinois and Indiana, suspended their gas taxes.

He said one large Anchorage retailer told him the savings would "absolutely be passed on to the consumers."

Among measures legislators considered, but did not adopt, was posting stickers on gas pumps telling consumers the tax had been suspended. That was intended to pressure retailers to pass along the savings.

Alaska has no price-gouging law, but even in states with such laws it is difficult to determine when gouging has occurred, Sniffen said.

Tesoro Corp., a publicly traded oil refiner and retailer with both refining and retailing operations in Alaska, had seen its refining profits increase in Alaska even before the tax suspension.

In the three months ending Sept. 30, generally prior to the gas tax suspension, the company's refining margin grew from $5.01 a barrel in 2007 to $13.76 a barrel, an increase of 175 percent, for its Pacific Northwest refineries, including its Alaska refinery on the Kenai Peninsula.

That margin was less than Tesoro's companywide margin of $16.69 during the same period, however, according to its most recent quarterly report.

A Tesoro Alaska Inc. spokesman was unavailable Friday.

Tesoro also reported that it had reduced production in Alaska, Washington and Hawaii because of the "weak market environment."

Rep. Mike Hawker, R-Anchorage, said he wanted the gas tax suspension modified to require that it be passed along to consumers.

That did not happen, but Hawker supported the suspension anyway. He did not return a phone call for this story.

Ruaro said he thinks the tax is likely to work as planned, and reduce costs for Alaskans.

"We know for sure that if we hadn't suspended the tax, consumers would still be paying it," he said.

Sniffen said his preliminary investigation doesn't dispute that, even though in some areas it may not have been fully passed on.

"I think it is a good idea," he said. "I think in areas with competition, it was passed on."